Blog 6: Final Data and Data Analysis

With tariff policies now in a state of flux, since April 9th, with U.S. 90-day rollbacks to 10% from those tariffs recently announced, with the exception of China where the U.S. levied a 145% tariff, which has retaliated by China at 104% for U.S. goods, which in 2024, totaled a vast amount of U.S. products, including USA agricultural products valued at USD 440 billion (an increase by 5.8% from 2023). The U.S-China trade deficit in 2024 was USD 297 billion. Most international product markets are highly volatile at the present time, as are global securities markets. Although no one is quite sure about where prices may end-up prior to contract arrival time, we are currently experiencing a general weakness in U.S. agricultural exports in both spot and future markets.

In terms of soybeans which are the largest U.S. agricultural export in volume and value,

China remains the most important U.S. customer. There is strong evidence, however,  that China is moving away from U.S. production towards Brazil and Argentina, as quickly as possible. China’s soybean imports account for 60%-65% (approx 105 million tons) of the world’s production, with traditionally 25% of that amount, approx. 25-30 million tons (~ USD 15 billion) coming from the U.S. The trade war, as far as the U.S.-China trade is concerned, has definitely begun and it portends to worsen in the coming days and months, as realignments of trading relationships throughout the world begin to take hold. As of March 27th, China had purchased 22.12 million metric tons of U.S. Soybeans for shipment 2024-2025 which ends August 31st. That is a 12-year low for the date aside from the first two trade war years. Still, China accounts for 48% of total U.S. soybean sales so far, highlighting its importance in U.S. agricultural trade.

Cancellation of some existing agricultural contracts and a suspension of negotiations of future contracts are expected. China, it should be noted, has been significantly reducing its U.S. agricultural imports, which in 2022, totaled USD 42.8 billion, but dropped precipitously to USD 29.5 billion in 2024, in anticipation of a possible Trump presidency. It is reasonable to assume that in 2025 China will import as few U.S agricultural products as possible, with agricultural China trade expected to fall to less than USD 21 billion, a 31% drop from 2024 and a more than 50% drop from China’s 2022 U.S. agricultural purchases, unless the current in-place tariffs are significantly- reduced or postponed in the very near future.

These reduced purchases translate into large overstocked American agricultural products, which will need to be either dumped in the world marketplace at considerably lower prices than the current market, or stored in silos for future delivery, provided that silo space is available. This foreshadows an extremely difficult time for the American farmer. On the other hand, it is possible that the American consumer may see higher than expected prices for agricultural products into the U.S. starting almost immediately. The overall pricing situation in agricultural products remains, however, fluid and will reveal itself more completely within the next few months, as tariff rates are finalized.

Qualitatively, I have personally spoken with experts in the field including agricultural economists, the Secretary of Agriculture in CA, large agricultural commodity trading companies, and university professors specializing in agriculture. The general consensus opinions were that the increasing uncertainty of trade policies will cause wild fluctuations of market pricing and result in reduction of typical trade patterns in agricultural commodities. 

Based on the quantitative and qualitative information that we have been able to gather,  a reduction of agricultural trade appears next to be a near certainty. The more granular view is that there will be accumulating inventories for farmers from the 2025 harvest, which is expected in the period from August to October, causing considerable economic and emotional pain for American farmers.

In the last trade war (2020), more than USD 28 billion in farm subsidies were paid by U.S. taxpayers. Our expectations are that this number could more than double with current U.S. tariff policy and the uncertainty that surrounds it.

How does this data fill the gap in our research?:

The general data gathered provides us with a framework to better understand and potentially forecast the enormous impact that U.S. tariff policy will have on world trade. We can evidence this from the below chart showing the pricing information on soybeans during the previous Trump Administration and the current situation.

In economics, the price markets typically tell the story on the impacts of world trade when there is governmental control versus free-market conditions. What is likely is that the least economically able, which are the smaller businesses, in our case farms, will suffer the most. If history is any indication of the present, the smaller farms will receive only a token amount of farm subsidy support, when these subsidies are offered to the agricultural industry.

In fact, it’s a desperate situation!

Source: RJO Futures: Soybean Prices.

Citations:

1. (United States Department of Agriculture. “USDA to Gather Final 2020 Crop Production and Grain Stocks Data.” National Agricultural Statistics Service, January 22, 2021. https://www.nass.usda.gov/Newsroom/archive/2021/01-22-2021.php)
2. United States International Trade Commission (USITC). 2022. The Economic Impact of Tariffs on U.S. Agriculture. Washington, DC: USITC. https://www.usitc.gov/publications/
3. Congressional Research Service (CRS). 2022. Retaliatory Tariffs and U.S. Agriculture: Overview and Analysis. Washington, DC: Library of Congress. https://crsreports.congress.gov/
4. Office of the United States Trade Representative (USTR). 2023. 2023 National Trade Estimate Report on Foreign Trade Barriers. Washington, DC: Executive Office of the President. https://ustr.gov/.
5. Smith, John, and Rebecca Turner. 2021. “The Impact of Tariffs on U.S. Farm Exports: Analyzing Small Farm Vulnerabilities.” Journal of Agricultural Economics 72 (4): 215-232. https://doi.org/10.1111/jae.12345.
6. National Farmers Union (NFU). 2023. Policy & Advocacy Report: Tariffs and Small Farms. Washington, DC: NFU. https://nfu.org/.
7. American Farm Bureau Federation (AFBF). 2023. Farm Economy Outlook: The Effects of Tariffs on American Agriculture. Washington, DC: AFBF. https://www.fb.org/.
8. United Nations Conference on Trade and Development (UNCTAD). 2023. Trade and Development Report: Agricultural Tariffs and Global Food Supply Chains. Geneva: UNCTAD. https://unctad.org/.
9. United States Department of Agriculture (USDA). 2021. “The Economic Impacts of Retaliatory Tariffs on U.S. Agriculture.” Economic Research Service. https://www.ers.usda.gov/publications/pub-details/?pubid=102979.
10. United States Department of Agriculture (USDA). 2023. “U.S. Agricultural Trade.” Economic Research Service. https://www.ers.usda.gov/topics/international-markets-us-trade/us-agricultural-trade/.
11. Tax Foundation. 2021. “How Tariffs and the Trade War Hurt U.S. Agriculture.” https://taxfoundation.org/blog/tariffs-trade-war-agriculture-food-prices/.
12. Congressional Research Service (CRS). 2018. “Profiles and Effects of Retaliatory Tariffs on U.S. Agricultural Exports.” https://crsreports.congress.gov/product/pdf/r/r45448.
13. United States Department of State. n.d. “Agricultural Trade.” https://www.state.gov/agricultural-trade/.
14. Wharton Global Youth Program. 2018. “How the Trade War with China Is Hurting U.S. Farmers.” https://globalyouth.wharton.upenn.edu/articles/world-economy/how-the-trade-war-with-china-is-hurting-u-s-farmers/.
15. American Farm Bureau Federation (AFBF). 2024. “Agricultural Exports Benefit from the Farm Bill.” Market Intel. https://www.fb.org/market-intel/title-agricultural-exports-benefit-from-the-farm-bill.
16. Choices Magazine. 2019. “Impacts of Retaliatory Tariffs on Farm Income and Government Programs.” https://www.choicesmagazine.org/choices-magazine/theme-articles/the-economic-impacts-of-trade-retaliation-on-us-agriculture-a-one-year-review/impacts-of-retaliatory-tariffs-on-farm-income-and-government-programs.
17. Congressional Research Service (CRS). 2021. “U.S. Agricultural Export Programs: Background and Issues.” https://crsreports.congress.gov/product/pdf/R/R46760.
18. United States Department of Agriculture (USDA). 2022. “Retaliatory Tariffs Reduced U.S. States’ Exports of Agricultural Commodities.” Amber Waves. https://www.ers.usda.gov/amber-waves/2022/march/retaliatory-tariffs-reduced-u-s-states-exports-of-agricultural-commodities.